The Best KPI’s for your Business

Key Performance Indicators (KPI) are clear, specific metrics that measure an organization’s progress toward a corporate goal. They generally have a time component, because they track the execution of a corporate strategy. They are the “scorecard” part of a balanced scorecard.

To develop KPI’s, it helps to divide them into three categories:

Target

Relative

Progress

Target

A target KPI is the simplest form. It’s as simple as setting a numerical target, such as:

Gain 5 new clients.

Achieve earnings per share of $1.50.

Sell 500,000 units.

Hire 10 new people.

Target KPI’s are pretty black and white. All businesses have many external factors that affect its bottom line, and if you’ve committed to a number there isn’t alot of flexibility. Maybe that’s the point, but sometimes a more effective and achievable KPI is one that is relative.

Relative

These are KPI’s that relate back to some form of the current state of the business. For example:

EBITDA increase of 10%.

Increase client base by 15%.

Sell 25% more units.

Using a relative measure establishes the rate of growth of the business rather than a hard number, and are often more widely used.

Progress

These are performance indicators that indicate the progress of something the organization is working toward.

Plant upgrade 50% complete.

Reorganization complete.

Other Requirements of KPI’s

Accountability

In order for KPI’s to be used effectively, they need to be accompanied by accountability. Each KPI should be assigned an owner, for example, the manager in charge of polystyrene production should be assigned the KPI of “increase polystyrene production by 20%.” The owner of each KPI needs to get a report on a daily, weekly, or monthly basis (whatever is appropriate for the KPI), and the business manager should hold regular meetings to discuss the state of each KPI (or at least get a regular progress report).

Graphical Tracking

Although there might be cases where a graphical plot of the progress of a KPI is not useful, I would suggest almost every KPI should include some form of graphical representation. Because of the time element inherent in KPI’s, a graph or bar chart works well and allows you to present progress to management or other stakeholders.

Verifiable

KPI’s should be easily verifiable and the data readily available. Generally, the more specific the KPI is the better. But using a metric that takes substantial effort to measure is equally as bad as being too general. The likely outcome is that it won’t get measured accurately, or worse, not at all.

Part of the Balanced Scorecard

Key Performance Indicators are an integral component of the balanced scorecard. In corporate strategy, they provide the progress metrics which get tracked to ensure an organization is progressing toward its strategic goals.

Example KPI’s

Here’s our checklist of 40 sample KPI’s. By the way I am absolutely not suggesting you should have 40 KPI’s, but this list will help with brainstorming the ones you need.